GTB keeps profit up on moderate earnings

Guaranty Trust Bank experienced another year of tight revenue in 2018 and management had to apply a pruning saw on costs to build profit. The volatile earnings behaviour seen at the end of the third quarter followed the bank to full year. Gross earnings crept from flat in the prior year to a marginal increase and closed 4% down from projection.   

It took management’s ingenuity to extract a stable profit performance from the revenue instability that could have sent profit crashing. Profit however slowed down considerably from the strong growth the bank recorded in 2017 and also closed 4% below projection.

Interest income was at the centre of earnings volatility in the year, which fluctuated violently from the strongest growth in six years in 2017 to a 6% drop in 2018. That means a loss of more than N20 billion on the main earning line of the bank.

Interest expenses added to the pain of the drop in interest income with a 5% increase, claiming an increased proportion of the earnings. A drop in net interest income to the tune of N24 billion indicates that the core lending and investing business of the bank did not contribute to the profit improvement achieved at the end to the year.

The high points on the bank’s income statement that powered the increase in profit were a 60% drop in loan impairment charges and improvement in fee-based earnings.

Gross earnings amounted to N434.69 billion for GTB at the end of 2018, an increase of 3.7% year-on-year. Net gains on financial instruments led revenue growth with a 117% advance to N24.6 billion. Other income followed, changing direction from a drop in 2017 to a 35% increase to N50.8 billion at the end of the year.

Also with an increase of over 22% in fee and commission income, non-interest income provided the strength to level up the decline in interest income and register the moderate improvement in gross earnings at the end of the period.

At N184.64 billion, GTB improved after tax profit by 10% at the end of the 2018 financial year, a sharp slowdown from a top record growth of 29% in 2017. Revenue slowdown in the final quarter caused a loss in profit margin that kept the profit figure 4% down from the N192 billion profit projection for the bank in 2018.

The strength for the profit growth obtained came from both the strong performance in non-interest income lines and a sustaining drop in loan impairment charges. The drop in loan loss expenses saved cost of over N7 billion for the bank at the end of the year. This is further to a drop of 81% in loan impairment charges in 2017.

Interest cost maintained the out of control behaviour noted at the end of the third quarter to full year. With a 5% increase against a 6% drop in interest income, interest expenses claimed over 27% of interest income against 24.6% in the preceding year. That resulted in a drop of 10% in net interest income to N222.4 billion over the review period.

Total operating cost was flat at N127 billion at the end of the year and claimed 29% of revenue. That is one of the lowest cost margins in the banking industry.

The bank improved profit margin further from the historic mark of 40.7% in 2017 to 42.5% at the end of 2018. GTB holds the record of the highest profit margin in the banking industry – the ability to convert revenue into profit.

The bank closed the 2018 financial year with earnings per share of N6.54, improving from N5.94 per share in 2017. It has announced a final cash dividend of N2.45 per share in addition to its interim of 30 kobo per share paid at the end of its half year operations in June 2018. The qualification date for the dividend is 8^th April and payment date is 18th April 2019.